Correlation Between Volkswagen and Porsche Automobile

Can any of the company-specific risk be diversified away by investing in both Volkswagen and Porsche Automobile at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Volkswagen and Porsche Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Volkswagen AG and Porsche Automobile Holding, you can compare the effects of market volatilities on Volkswagen and Porsche Automobile and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Volkswagen with a short position of Porsche Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Porsche Automobile.

Diversification Opportunities for Volkswagen and Porsche Automobile

0.95

Correlation Coefficient

Volkswagen  Porsche Automobile

Almost no diversification

The 3 months correlation between Volkswagen and Porsche is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Porsche Automobile Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porsche Automobile and Volkswagen is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Volkswagen AG are associated (or correlated) with Porsche Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porsche Automobile has no effect on the direction of Volkswagen i.e., Volkswagen and Porsche Automobile go up and down completely randomly.

Pair Corralation between Volkswagen and Porsche Automobile

Assuming the 90 days horizon Volkswagen AG is expected to under-perform the Porsche Automobile. In addition to that, Volkswagen is 1.08 times more volatile than Porsche Automobile Holding. It trades about -0.19 of its total potential returns per unit of risk. Porsche Automobile Holding is currently generating about -0.15 per unit of volatility. If you would invest  437.00  in Porsche Automobile Holding on September 2, 2024 and sell it today you would lose (77.00) from holding Porsche Automobile Holding or give up 17.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Volkswagen AG  vs.  Porsche Automobile Holding

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Porsche Automobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Porsche Automobile Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Volkswagen and Porsche Automobile

The main advantage of trading using opposite Volkswagen and Porsche Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, Porsche Automobile can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Porsche Automobile will offset losses from the drop in Porsche Automobile's long position.

The idea behind Volkswagen AG and Porsche Automobile Holding pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.